Barron's Streetwise - Good News on Covid Treatments. And What's the Deal With Dave Portnoy?

Episode Date: June 19, 2020

Jack talks with Gilead Sciences CEO Daniel O'Day, and weighs in on a day-trading celebrity. Learn more about your ad choices. Visit megaphone.fm/adchoices

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So we have to invest in this. Welcome to the Barron Streetwise podcast. I'm Jack Howe. The voice you just heard, that's Daniel O'Day. He's the CEO of a drug company called Gilead Sciences, best known for Remdesivir, an early leader in the race to treat COVID-19. In a moment, we'll hear more from Dan and get an update on how quickly more and better medicines might be available, and when to expect life to get back to normal.

Listening in, as always, is our audio producer, Meta. Hi, Meta. Hey there. Which would you like to do first? Do you want to hear me struggle to pronounce some drug names, or would you like to do a listener question? I think we should start with a listener question today. Let's do it. What do we have? So we've got a question from John. He's an undergraduate finance major at Wofford College in South Carolina. Did I say that right? Wofford? Wofford? I think it's Wofford. Wofford. I'm going to say Wofford, but you can say Wofford. Why don't you split the difference? Hey, Jack.

I've been following your show since the beginning of the pandemic because I was looking for new online resources to help me learn how to invest. And it's been particularly interesting to both listen to what you say and follow Dave Portnoy on Twitter, who has been quite loud in his live streams. follow Dave Portnoy on Twitter, who has been quite loud in his live streams. And I just wanted to ask what you think his effect on getting younger investors into the market is and how young investors should take this market rebound with a grain of salt. Well, thank you, John, from Wofford College for your question and for listening to this podcast in between Dave Portnoy viewings on Twitter. You asked what I think his effect will be on younger investors. For people who don't know Dave Portnoy, he's the 43-year-old founder of something called Barstool Sports.

By the common man, for the common man, it's Barstool Radio. It started as a gambling newspaper in Boston in 2003, and it has turned into a somewhat satirical sports commentary and men's lifestyle blog known for its saucy takes and appeal to bro culture. Matt, am I part of bro culture? I don't think so, no. Is it the minivan holding me back? Or is it the fact that I know the names and backstories of all the Disney princesses?

It might be that you're just a part of a dad culture. Well, anyhow, with sports shut down during the pandemic, Portnoy has rebranded himself as an irreverent and overconfident day trader. And he's begun posting videos on Twitter touting his success. Day Trader, and he's begun posting videos on Twitter touting his success. He calls his operation DDTG for Davey Day Trader Global. Every single day, it's the same thing. I wake up, I look, and we're up a bazillion. It's green, green, green, green, green.

Speaking for all media everywhere, I must say, we're somewhat fascinated. Well, the retail trading boom is giving one man a whole lot of attention. The New York Times calling him, quote, the captain of the day traders. The FT coining him a retail bro. And Bloomberg saying Barstool Sports Day Portnoy is leading an army of day traders. Now, people who charge money for advice on Wall Street, they're not laughing. And Portnoy likes to poke them with videos designed to outrage, like when he calls himself smarter than Warren Buffett. I know Warren Buffett is like out of airlines.

I don't want to say I'm smarter than Buffett, but clearly I am. Portnoy has an army of followers, including a lot of young men. Meanwhile, there's a zero-commission online broker called Robinhood that has been gaining popularity with young traders. Robinhood believes now is the time to do money, without the commission fees, so you can start investing today, wherever you are, even hanging with your dog. Some people point to Portnoy and Robinhood trading as one reason that some stock prices seem to be going nuts. Now, I'm not an expert on Dave Portnoy or barstool or bars or stools. I mean, I've done some fieldwork on bars, but that's not going to help us here. Anyhow, there are a few things I can tell you. First, Dave Portnoy isn't the reason the stock market as a whole seems disconnected from the economy at times. That's

related to extraordinary measures by the Federal Reserve to revive the economy, which is having a pronounced effect on stocks. But I think it's entirely possible that Portnoy's videos, combined with the recent surge in day trading, has affected some stocks. For example, Barstool earlier this year sold a minority stake to Penn National Gaming, a casino company, and Portnoy often boasts about owning a lot of Penn stock and draws attention to its movements. So this past week, Goldman Sachs published a report pointing out that stocks that are popular with retail traders have been outperforming those that are favorites of hedge funds and

mutual funds. And it provided a list of retail favorites ranked by their performance since the March 23rd market bottom. Tesla's a retail favorite, for example. It ranked third. It's up 124% since the market bottom. But at the top of the list was Penn National, up 184%. That brings me to my second point. Portnoy isn't dumb. He's doing satire, and I think one of the reasons the Wall Street establishment is voicing so much outrage is that some worry that Portnoy is a parody of them. The stake Penn bought in Barstool valued the company at more than $400 million.

People don't build media companies that large without tenacity and smarts. And Portnoy is not blowing his fortune day trading. He's using a relatively small slice of his money to generate huge publicity, which seems to have paid off nicely for his Penn National holdings. Portnoy is basically a Kardashian. He's turning publicity into riches while pretending to be the butt of the joke. If that offends anyone's sense of justice or fair play, maybe it'll make them feel a little better to know that Portnoy sold a majority stake of Barstool for a pittance four years ago to a company called the Chernin Group. It's headed by longtime Hollywood executive Peter Chernin,

so a large portion of Barstool's success has accrued to the show business establishment. Incidentally, Deutsche Bank Research downgraded Penn National to a sell rating earlier this month, writing in a report about heavy retail buying, which leads us to believe we are at the latter stages of the momentum-based move in shares. As for the effect Dave Port and I will have on younger investors, my guess is many will gain a newfound interest in the stock market, probably blow a little money in the process, hopefully learn from their mistakes. More than two decades ago, I was working on Wall Street while day trading garbage for my own account during the dot-com stock bubble. It was fun.

It was also a moment in time that ended with the dot-com crash, and I shifted my attention to long-term savings. Some young traders could get hurt, and I don't want to make light of that. I read a heartbreaking story about a 20-year-old student who took his own life after seeing the balance in his Robinhood account go sharply negative. I think we all wish we could have told him that day trading is so much less important than his life. John, to you and your fellow students, go ahead and watch Dave Portnoy with my blessing, so long as you keep in mind that it's schtick. If you want to day trade, have fun, but keep your bets small and don't let yourself become obsessed. Day trading is a moment in time that will pass.

There's a long, rich life that comes next, and it's a lot of fun, especially if you develop good saving habits now. In the very first episode of this podcast back in March, we talked about the search for a treatment for COVID-19, and there was news on that front this past week. The FDA revoked emergency authorization for the anti-malarial drugs chloroquine and hydroxychloroquine, calling them unlikely to be effective. But we also learned about another existing medicine that has proven useful for treating COVID-19. It's a corticosteroid called dexamethasone, and it was shown in a trial to reduce deaths. Now, I had an opportunity to

speak this past week with someone who also has a drug that has been shown to be effective for treating COVID-19. Hi, it's Jack. Hey, Jack. Daniel O'Day ran the drug business of the Swiss company Roche before leaving to take over Gilead last year.

Gilead has a family of hepatitis C treatments that were once enormously profitable, but revenues there have been evaporating in recent years, partly because of new competition and lower prices, but also because the drugs were so effective that they cured patients and reduced the size of the market. That leaves HIV medicines as Gilead's biggest revenue source. There, it's a dominant player. Its portfolio accounts for two-thirds of branded HIV prescriptions in the U.S. But if you've heard Gilead mentioned in the news this year, it's probably not for HIV, but for remdesivir.

The drug remdesivir has been getting a lot of attention after a preliminary trial found it helped patients recover more quickly. And now, a new study in Washington state is showing such positive results, they're no longer even using the placebo. It didn't start as a COVID-19 drug. This medicine was initially developed to look at other viruses like hepatitis C and rhinovirus. And then it was tested in families of coronaviruses, so SARS and MERS, but those epidemics thankfully went away before we exactly knew the effectiveness of that.

And yet we continued to invest in that knowing that there was likely to be another type of virus and maybe one in the coronavirus family where it had shown to be quite effective before. Then came severe acute respiratory syndrome related coronavirus 2 or SARS-CoV-2 or what most of us just call the coronavirus, the cause of the COVID-19 pandemic. And a new drug CEO learned quickly about an old trial drug that just might help. I first became aware of it very early January. Our scientists came to me and they said, Dan, we've got this medicine that has been effective in other coronaviruses. We'd like

to put this to work to see if it has an effect against the circulating coronavirus that this time was only in China. And the obvious answer was yes, of course, immediately. Dan says Gilead only had a small sample of the drug at the time, but that it quickly put together a group of top scientists and got government health groups involved and started trials in late January and early February. And at the same time, we said, well, we're not sure if this is going to work. We knew fairly early on that it had a strong effect in the lab. In other words, in a test tube, that it was very potent in terms of being able to suppress the virus from growing and replicating. But we had no idea if that would have a clinical effect in patients. And so we

immediately said, well, we have to be ready. So we have to invest in this. That investment paid off in late April when Dr. Anthony Fauci, head of the National Institutes of Allergy and Infectious Diseases, went on TV to share some good news about remdesivir. That the data shows that remdesivir has a clear-cut significant positive effect in diminishing the time to recovery. This is really quite important for a number of reasons. We should note that remdesivir isn't a cure. It's a treatment with moderate benefits, but it's the first such treatment we have. Dan says Gilead's development work on remdesivir continues. We're taking those results and trying to see now if we can bring it even earlier to

patients prior to coming into the hospital in a, let's say, a skilled nursing home where patients are higher at risk and doing formulation work to see if we can, instead of this being given as an intravenous injection, which it is today, which makes it very effective. We have a belief we may be able to provide this in an inhaled version, which would be less invasive, of course, and potentially more in the outpatient setting. So we now have three proven treatments for COVID-19. Not rumored treatments, not Twitter arguments over treatments, but treatments that have stood up to clinical scrutiny. There's remdesivir, which was shown to shorten hospital stays. There's dexamethasone, which was shown to reduce deaths. And there's something called convalescent plasma, which involves transferring a component of the blood of patients who have recovered from the virus to those who are sick. I wanted to learn more about how these treatments compare and where the broader search for COVID-19

treatment stands. So I got on the phone with Jeffrey Porges. Hello? Hi, Jeffrey. It's Jack Howard Behren's. How are you? I'm well. I'm well. Jeffrey's a doctor who went to Harvard Business School and who now is an analyst at Lyric Partners covering biotech.

First, we talked about Gilead's remdesivir. It works by stopping the virus from replicating, which might reduce the number of days you would need in the hospital. Jeffrey said the level of effect for remdesivir was about 30 to 40 percent, depending on what you're measuring. So it's definitely a useful drug, and Gilead's seen lots of demand, and they are out of stock now and expect to be out of stock throughout the end of the year. At that point, they'll have had the capacity to supply something between one and 1.8 million courses by the end of the year. Dexamethasone can reduce harmful inflammation that a virus response creates. Jeffrey puts dexamethasone's effect lower than that of

remdesivir at 25% to 30%. So I would say not quite as effective as remdesivir, but still a useful medicine. That leaves convalescent plasma, and Jeffrey puts its effectiveness at 30% to 60%. So none of these treatments are perfect, but the good news is that doctors might not have to choose just one. There is no reason to believe that a combination of remdesivir and dexamethasone and convalescent plasma might not give additive benefit such that you could be reducing the mortality by 60 or 70 percent, not 30 or 40 percent. So I think that's where treatment's going to go, but it obviously takes time to do those studies. There's more hope. The drugs we've been talking about existed before COVID-19. They weren't made specifically for it. Now, during our first podcast episode,

Len Schleifer, the CEO of a biotech called Regeneron, predicted that the company would start the first trial of a drug made specifically for COVID-19 in June. And earlier this month, it did just that. There are a number of such drugs being developed. Jeffrey says Regeneron is in the lead because it has started clinical trials first, and that he expects to hear about results of that trial by September. But he cautions that it could take longer for a drug like that to go into widespread use. You have to allow time for them to actually repeat the early trials and show in a larger study that the drug is safe and effective. So that's going to take another three to six

months. Plus you have to scale up manufacturing, you have to get regulatory review. So realistically, these novel treatments, particularly the antibodies, won't be available until probably the first half of next year, possibly the end of the first quarter. So by this time next year, we could have much more effective treatments. Now, what about a vaccine? There are more than 100 development programs worldwide, but fewer than 10 in clinical trials. And unfortunately, it could take a long time before we see the benefits. I think that we're not really going to have vaccines providing us with herd immunity until 2022 or later, simply because of the timeline to establish safety.

Safety is the key limiting factor with vaccines. Think about it. If you develop a medicine to treat a relatively small group of critically ill patients as a last hope, regulators are going to be open to letting you try it. But with vaccines, you're doing almost just the opposite. They're given to enormous populations of healthy people. There's a lot of potential for harms if the drugs aren't proven incredibly safe. But maybe vaccines can be approved for certain high-risk groups before they're approved for everyone. Here's Jeffrey. There's certainly precedent for approving vaccines for high-risk individuals based on

less extensive data and then gradually rolling the vaccine out to the broader population as more and more safety data accumulates. So there's plenty of good news here, but also a lot more work to be done. By the way, for investors wondering whether to buy Gilead stock, it raced ahead earlier this year on the news about remdesivir, and it's now settled back to around 12 times earnings, which is a big discount to the broader stock market. Only one-third of analysts who cover it are bullish, but Jeffrey is one of them in part because he likes the humble valuation. He thinks the stock could have more than 25% upside over the next year.

That's not so much because of Remdesivir as it is because the company has shown an ability to expand beyond HIV into other diseases while developing a treatment for COVID-19. Under Dan O'Day, Gilead has entered a collaboration to make drugs for inflammatory diseases, and it's bought a developer of cancer drugs. The interesting thing about Gilead is they've sort of been able to walk and chew gum at the same time pretty effectively. So it's not every company that can be focusing on a huge public health crisis and also building out their portfolio at the same time.

So I give them pretty high marks. Before we go, I want to thank John for sending in that question earlier about Dave Portnoy. Meta, what school is he from again? Wofford. You can't go wrong if you say them both exactly and everyone please keep the questions

coming just tape on your phone use the voice memo app and send an email to jack.how that's h-o-u-g-h at barons.com thank you for listening Meta Lutsoft is our producer subscribe to the podcast on Apple Podcasts, Spotify, or wherever you listen to podcasts.

If you listen on Apple, write us a review. Follow me on Twitter to find out about stories and new podcast episodes. That's at Jack Howe, H-O-U-G-H. See you next week.